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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2018
Fair Value Measurements [Abstract] |
FAIR VALUE MEASUREMENTS | 13. FAIR VALUE MEASUREMENTS The Company is required to determine the fair value of all derivatives except those which qualify for the NPNS exemption (refer to note 1) and uses a market approach to do so. The three levels of the fair value hierarchy are defined as follows: Level 1 - Where possible, the Company bases the fair valuation of its financial assets and liabilities on quoted prices in active markets (“quoted prices”) for identical assets and liabilities. Level 2 - Where quoted prices for identical assets and liabilities are not available, the valuation of certain contracts must be based on quoted prices for similar assets and liabilities with an adjustment related to location differences. Also, certain derivatives are valued using quotes from over-the-counter clearing houses. Level 3 - Where the information required for a Level 1 or Level 2 valuation is not available, derivatives must be valued using unobservable or internally-developed inputs. The primary reasons for a Level 3 classification are as follows: While valuations were based on quoted prices, significant assumptions were necessary to reflect seasonal or monthly shaping and locational basis differentials. The term of certain transactions extends beyond the period when quoted prices are available, and accordingly, assumptions were made to extrapolate prices from the last quoted period through the end of the transaction term. The valuations of certain transactions were based on internal models, although quoted prices were utilized in the valuations. Derivative assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set out the classification of the methodology used by the Company to fair value its derivatives:
As at |  | December 31, 2018
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 70 |  | - |  | 70
Power purchases |  | 2 |  | - |  | - |  | 2
Natural gas purchases and sales |  | - |  | 2 |  | - |  | 2
Heavy fuel oil purchases |  | - |  | 1 |  | - |  | 1
Foreign exchange forwards |  | - |  | 29 |  | - |  | 29
|  | 2 |  | 102 |  | - |  | 104
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 2 |  | 2 |  | 3 |  | 7
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | 1 |  | 36 |  | 18 |  | 55
|  | 3 |  | 38 |  | 21 |  | 62
Other derivatives |  |  |  |  |  |  |  |
Interest rate swap |  | - |  | 1 |  | - |  | 1
|  | - |  | 1 |  | - |  | 1
Total assets |  | 5 |  | 141 |  | 21 |  | 167
Liabilities |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Foreign exchange forwards |  | - |  | 5 |  | - |  | 5
|  | - |  | 5 |  | - |  | 5
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 1 |  | - |  | 1
Power purchases |  | 1 |  | - |  | - |  | 1
Heavy fuel oil purchases |  | - |  | 1 |  | - |  | 1
Natural gas purchases and sales |  | 3 |  | - |  | - |  | 3
|  | 4 |  | 2 |  | - |  | 6
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 14 |  | 6 |  | 1 |  | 21
Natural gas swaps, futures, forwards and physical contracts |  | - |  | 28 |  | 305 |  | 333
|  | 14 |  | 34 |  | 306 |  | 354
Total liabilities |  | 18 |  | 41 |  | 306 |  | 365
Net assets (liabilities) | $ | (13) | $ | 100 | $ | (285) | $ | (198)
As at |  | December 31, 2017
millions of Canadian dollars |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps | $ | 5 | $ | - | $ | - | $ | 5
Foreign exchange forwards |  | - |  | 2 |  | - |  | 2
|  | 5 |  | 2 |  | - |  | 7
Regulatory deferral |  |  |  |  |  |  |  |
Commodity swaps and forwards |  |  |  |  |  |  |  |
Coal purchases |  | - |  | 127 |  | - |  | 127
Power purchases |  | 5 |  | - |  | - |  | 5
Natural gas purchases and sales |  | - |  | 5 |  | - |  | 5
Heavy fuel oil purchases |  | 4 |  | 8 |  | - |  | 12
Foreign exchange forwards |  | - |  | 32 |  | - |  | 32
|  | 9 |  | 172 |  | - |  | 181
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | - |  | 3 |  | 9 |  | 12
Natural gas swaps, futures, forwards, physical contracts and related transportation |  | - |  | 26 |  | 25 |  | 51
|  | - |  | 29 |  | 34 |  | 63
Other derivatives |  |  |  |  |  |  |  |
Interest rate swap |  | - |  | 2 |  | - |  | 2
|  | - |  | 2 |  | - |  | 2
Total assets |  | 14 |  | 205 |  | 34 |  | 253
Liabilities |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |
Power swaps |  | 2 |  | - |  | - |  | 2
Foreign exchange forwards |  | - |  | 5 |  | - |  | 5
|  | 2 |  | 5 |  | - |  | 7
Regulatory deferral |  |  |  |  |  |  |  |
Power purchases |  | 3 |  | - |  | - |  | 3
Natural gas purchased and sales |  | 5 |  | 1 |  | - |  | 6
Foreign exchange forwards |  | - |  | 4 |  | - |  | 4
|  | 8 |  | 5 |  | - |  | 13
HFT derivatives |  |  |  |  |  |  |  |
Power swaps and physical contracts |  | 49 |  | 5 |  | (4) |  | 50
Natural gas swaps, futures, forwards and physical contracts |  | 6 |  | 47 |  | 187 |  | 240
|  | 55 |  | 52 |  | 183 |  | 290
Total liabilities |  | 65 |  | 62 |  | 183 |  | 310
Net assets (liabilities) | $ | (51) | $ | 143 | $ | (149) | $ | (57)
The change in the fair value of the Level 3 financial assets for the year ended December 31, 2018 was as follows:
| HFT Derivatives
millions of Canadian dollars | Power | Naturalgas | Total
Balance, January 1, 2018 | $ | 9 | $ | 25 | $ | 34
Total realized and unrealized gains (losses) included in non-regulated operating revenues |  | (6) |  | (7) |  | (13)
Balance, December 31, 2018 | $ | 3 | $ | 18 | $ | 21
The change in the fair value of the Level 3 financial liabilities for the year ended December 31, 2018 was as follows:
| HFT Derivatives
millions of Canadian dollars | Power | Naturalgas | Total
Balance, January 1, 2018 | $ | (4) | $ | 187 | $ | 183
Total realized and unrealized gains (losses) included in non-regulated operating revenues |  | 5 |  | 118 |  | 123
Balance, December 31, 2018 | $ | 1 | $ | 305 | $ | 306
The Company evaluates the observable inputs of market data on a quarterly basis in order to determine if transfers between levels is appropriate. For the year ended December 31, 2018, there were no transfers between levels. Significant unobservable inputs used in the fair value measurement of Emera’s natural gas and power derivatives include third-party-sourced pricing for instruments based on illiquid markets; internally developed correlation factors and basis differentials; own credit risk; and discount rates. Internally developed correlations and basis differentials are reviewed on a quarterly basis based on statistical analysis of the spot markets in the various illiquid term markets. Where possible, Emera also sources multiple broker prices in an effort to evaluate and substantiate these unobservable inputs. Discount rates may include a risk premium for those long-term forward contracts with illiquid future price points to incorporate the inherent uncertainty of these points. Any risk premiums for long-term contracts are evaluated by observing similar industry practices and in discussion with industry peers. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. The following table outlines quantitative information about the significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy:
As at |  | December 31, 2018
millions of Canadian dollars |  | Fair Value | ValuationTechnique | Unobservable Input | Range | Weighted average
Assets |  |  |  |  |  |
HFT derivatives – | $ | 3 | Modelled pricing | Third-party pricing | $24.31 - $50.29 | $31.43
Power swaps and |  |  |  | Probability of default | 0.03% - 0.13% | 0.13%
physical contracts |  |  |  | Discount rate | 0.03% - 2.19% | 1.45%
|  |  |  | Correlation factor | 84.98% - 84.98% | 84.98%
HFT derivatives – |  | 8 | Modelled pricing | Third-party pricing | $1.80 - $12.21 | $4.75
Natural gas swaps, futures, |  |  |  | Probability of default | 0.01% - 2.94% | 0.24%
forwards, physical contracts |  |  |  | Discount rate | 0.01% - 30.62% | 4.25%
and related transportation |  | 10 | Modelled pricing | Third-party pricing | $1.95 - $12.90 | $8.68
|  |  |  | Basis adjustment | $0.07 - $3.43 | $1.88
|  |  |  | Probability of default | 0.01% - 3.20% | 0.57%
|  |  |  | Discount rate | 0.01% - 7.61% | 0.42%
Total assets | $ | 21 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – | $ | 1 | Modelled pricing | Third-party pricing | $20.80 - $50.29 | $26.38
Power swaps and |  |  |  | Probability of default | 0.08% - 0.29% | 0.15%
physical contracts |  |  |  | Discount rate | 0.03% - 2.99% | 1.65%
|  |  |  | Correlation factor | 84.98% - 84.98% | 84.98%
HFT derivatives – |  | 286 | Modelled pricing | Third-party pricing | $1.48 - $12.90 | $5.75
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.01% - 2.94% | 0.09%
forwards and physical contracts |  |  |  | Discount rate | 0.01% - 11.96% | 2.35%
|  | 19 | Modelled pricing | Third-party pricing | $2.15 - $13.18 | $7.54
|  |  |  | Basis adjustment | $0.07 - $3.43 | $2.67
|  |  |  | Own credit risk | 0.01% - 2.76% | 0.10%
|  |  |  | Discount rate | 0.01% - 7.61% | 1.38%
Total liabilities | $ | 306 |  |  |  |
Net assets (liabilities) | $ | (285) |  |  |  |
As at |  | December 31, 2017
millions of Canadian dollars |  | Fair Value | ValuationTechnique | Unobservable Input | Range | Weighted average
Assets |  |  |  |  |  |
HFT derivatives – | $ | 1 | Modelled pricing | Third-party pricing | $24.88 - $117.90 | $92.93
Power swaps and |  |  |  | Probability of default | 0.00% - 0.01% | 0.00%
physical contracts |  |  |  | Discount rate | 0.00% - 0.13% | 0.00%
|  | 8 | Modelled pricing | Third-party pricing | $63.48 - $117.00 | $102.68
|  |  |  | Correlation factor | 0.94% - 0.99% | 0.96%
|  |  |  | Probability of default | 0.00% - 0.00% | 0.00%
|  |  |  | Discount rate | 0.00% - 0.00% | 0.00%
HFT derivatives – |  | 18 | Modelled pricing | Third-party pricing | $2.06 - $8.24 | $3.61
Natural gas swaps, |  |  |  | Probability of default | 0.00% - 0.05% | 0.00%
futures, forwards, |  |  |  | Discount rate | 0.00% - 0.29% | 0.06%
physical contracts |  | 7 | Modelled pricing | Third-party pricing | $2.04 - $12.52 | $6.42
and related transportation |  |  |  | Basis adjustment | 0.08% - 0.71% | 0.52%
|  |  |  | Probability of default | 0.00% - 0.00% | 0.00%
|  |  |  | Discount rate | 0.00% - 0.09% | 0.01%
Total assets | $ | 34 |  |  |  |
Liabilities |  |  |  |  |  |
HFT derivatives – | $ | (6) | Modelled pricing | Third-party pricing | $24.88 - $117.90 | $95.46
Power swaps and |  |  |  | Own credit risk | 0.00% - 0.01% | 0.00%
physical contracts |  |  |  | Discount rate | 0.00% - 0.13% | 0.00%
|  | 2 | Modelled pricing | Third-party pricing | $94.5 - $117.00 | $105.52
|  |  |  | Correlation factor | 0.94% - 0.99% | 0.96%
|  |  |  | Probability of default | 0.00% - 0.00% | 0.00%
|  |  |  | Discount rate | 0.00% - 0.00% | 0.00%
HFT derivatives – |  | 172 | Modelled pricing | Third-party pricing | $1.89 - $11.81 | $4.64
Natural gas swaps, futures, |  |  |  | Own credit risk | 0.00% - 0.00% | 0.00%
forwards and physical contracts |  |  |  | Discount rate | 0.00% - 0.12% | 0.02%
|  | 15 | Modelled pricing | Third-party pricing | $2.15 - $12.52 | $8.94
|  |  |  | Basis adjustment | 0.08% - 0.71% | 0.53%
|  |  |  | Own credit risk | 0.00% - 0.00% | 0.00%
|  |  |  | Discount rate | 0.00% - 0.08% | 0.01%
Total liabilities | $ | 183 |  |  |  |
Net assets (liabilities) | $ | (149) |  |  |  |
The financial assets and liabilities included on the Consolidated Balance Sheets that are not measured at fair value consisted of the following:
As at |  |
millions of Canadian dollars |  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
December 31, 2018 | $ | 15,411 | $ | 15,908 | $ | - | $ | 14,991 | $ | 917 | $ | 15,908
December 31, 2017 | $ | 13,881 | $ | 15,217 | $ | 69 | $ | 14,346 | $ | 802 | $ | 15,217
The Company has designated $1.2 billion United States dollar denominated Hybrid Notes as a hedge of the foreign currency exposure of its net investment in United States dollar denominated operations. An after-tax foreign currency loss of $122 million was recorded in Other Comprehensive Income for the year ended December 31, 2018 (2017 – $97 million gain after-tax). There was no ineffectiveness for the year ended December 31, 2018 (2017 – nil).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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